North Coast vintners, growers bullish on future

NAPA — North Coast wineries and grape growers are bullish on the future following a strong harvest in 2012 and an improving economy that has given Americans more time and money to spend on wine.

"The mood right now is much more positive than it has been in the past five years," Robert Smiley, director of wine at the UC Davis Graduate School of Management, told 280 winery executives, growers and lenders Tuesday at the annual Wine Industry Financial Symposium.

Wineries are planting new vineyards and signing long-term contracts with growers to ensure they have access to grapes. But vineyard expansion in California is not expected to keep up with demand, which could eventually pose a threat to grape growers as imports capture an increasing share of the U.S. wine market, several speakers said.

In Napa County, most new vineyards are being planted with cabernet sauvignon grapes, said Tony Correia, founder of Correia-Xavier Inc., a vineyard appraisal firm with offices in Sonoma and Fresno. But in Sonoma County, "pinot noir is driving the bus," Correia said.

The value of the county's pinot crop has soared over the last 15 years, from less than $20 million in 1998 to a record $160 million last year, Correia said.

Pinot vineyard acreage nearly tripled in Sonoma County during the same period, surpassing 12,000 acres last year. But the varietal remains in high demand, said Steve Fredricks, president of Turrentine Wine Brokerage.

Demand for premium wines has allowed North Coast vintners to boost production and raise prices concurrently over the last decade.

"The volume has increased significantly, 40 percent, over the last 10 years, but even more important than that, the value of the wine being sold has increased by 60 percent," said Hugh Reimers, chief operating officer of Jackson Family Wines. "A lot of positive signs for the U.S. wine market."

Rising production costs are a serious concern for U.S. wine industry executives, said Smiley, who released the results of an annual survey of vintners and growers at the conference. A slow economic recovery, water availability and consolidation of retailers and distributors are other major concerns, he said.

To quench consumers' thirst for wine, some U.S. wineries are importing more bulk wine from overseas to put into their bottles, said David Freed, chairman of the Silverado Group, a vineyard investment firm in Napa. Imports grew from 22 percent of the market in 2001 to 37 percent in 2012, Freed said.

That trend will probably continue, because wineries don't have enough internal resources for grapes, said Pete Mondavi Jr., co-owner of Charles Krug Winery.

"The cost of importing juice from overseas, particularly down South, is quite favorable," Mondavi said.

The imported bulk wine is largely going into lower-priced bottles of wine. Grape growers in premium regions, like Napa and Sonoma, won't necessarily see an immediate impact, Freed said. Even so, he's concerned about the long-term effects on the California wine brand.

"If you take a popular brand and fill the bottle with Chilean wine or Argentinian wine or Australian wine, what are you doing?" Freed asked. "Are you not demeaning or degrading the California brand by putting foreign wine in the bottle?"

Freed cautioned that other industries like automobiles and steel eventually shifted their sourcing outside the United States, and could serve as an example.

"What is the California wine industry going to look like 10 years from now?" Freed asked. "Is it going to be stronger because some high percentage is imports, or are we going to wish we hadn't put foreign wine in our bottles?"